The Federal Budget 2016 should consider tax on luxury items.

“If the budget is trying to raise cash in an easy way, why don’t we stop many more luxury items from being included in tax deductions?” asks Dale Boccabella ​from the UNSW Business School.

At the moment, the Federal Government limits the amount which may be deducted for income tax purposes for cars, because when the rule was introduced they were thought of as a luxury item.

“This only applies to cars. This category of luxury expenditure, and the deduction limit is the only area in the Tax Act where a device to get you around – which is often income-producing expenditure - is identified as ‘luxury expenditure’ and is denied deductibility,” he says. “Now perhaps is the time to consider other luxury items, and prevent them from being tax deductible.”

The Turnbull government is whittling down the number of tax changes that could be adopted in the Federal budget on May the 3rd, with a rise in the GST already off the table and a plan to offer simplified tax returns - which would have raised as much as $6 billion in revenue to pay for tax cuts - now shelved.

Dale Boccabella, an Associate Professor of taxation law at UNSW Australia, says “the current position that nearly all luxury income producing expenditure is deductible has a dubious basis. If you want to raise revenue, cut some of it. Indeed, when the tax rules for luxury cars were introduced in 1979, it did not really explain why luxury car expenditure should not be deductible even when use of the car is 100 per cent income producing.”

He argues that there are many instances of luxury expenditure that currently attract deductions, and no limit applies to them. He says some examples are “luxury air travel, luxury accommodation on travel or in attending conferences, leasing of luxury premises, luxury food and drink consumption, and luxury furniture and fittings in buildings. If Treasurer Scott Morrison is serious about raising revenue and placing spending restraint front and centre of the budget, these should be of much more urgent consideration than tweaks to superannuation tax concessions and major cuts to personal or company tax.”

Ahead of the Budget, Dale Boccabella is available for analysis of taxation changes that may be announced in May. Many other academics from the UNSW Australia Business School are also available to give their independent analysis of the Federal Budget 2016.